Cramer: Behind Tesla’s Fast & Furious Advance

Had you bought Tesla only one week ago, you'd be looking at serious profits about now.

The move has been nothing short of extraordinary. On May 8th the stock was trading around $56 and change. By Tuesday May 14th the stock traded well over $90.

That's the kind of advance that great Wall Street stories are made of – it's reminiscent of the Industrial Revolution as people dove headfirst into the railroads and oil to make their fortunes.

On the surface it would appear to be a similar moment – that is, as railroads flourished then, so should Tesla flourish now.

It's a logical thesis - just take a look at some of the data floating around the market.

- Last week Tesla reported its first quarterly profitin its 10 year history.- Telsa sold 4,900 of itsModel S electric sedans in the first quarter, up from the 4,500 it had forecast. - The company said worldwide orders now are running at a 22,000-per-year pace. - Morgan Stanley raised its price target to $103 from $47 citing dramatic advances in the business

Source: Teslamotors.com

Tesla Motors S Model

But just because the thesis is logical, doesn't mean it's right.

Of course, some of the advance may have to do with excitement about Tesla's potential in years to come.

But Cramer said if you look inside the rally, you'll see something else -- a phenomenon known on Wall Street as a short squeeze. "More than 40% of Tesla stock is sold short," Cramer said. "Take that to mean big money such as hedge funds are betting against this company."

Because shorting a stock involves first borrowing it, and then selling it into the market only to return it later – when stocks advances rapidly like Tesla has, shorts either opt to cover or in some instances they're forced to cover.

In these kinds of circumstances, "it doesn't matter what price is paid even if it rips the lungs out of the short," Cramer said.

As a result, a stock can advance 50% in only 5 days.

Now that doesn't mean the stock will necessarily decline sharply, it might not. Fundamentals may support the price increase.

Nonetheless, Cramer feels it's important to understand the mechanics of the advance so you can make your stock choices wisely.